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Markets under Siege: How Political Beliefs Move Financial Markets

Author

Listed:
  • Jha, Saumitra
  • Koudijs, Peter
  • Salgado, Marcos

Abstract

Can political beliefs, particularly about benefits of war versus peace, move thick financial markets? We document that following an unlikely victory by French citizen-soldiers during the German Siege of Paris (1870), prices of the highly liquid French sovereign bond diverged substantially and persistently there versus elsewhere. While France resisted, Parisian prices were higher and responded more to war events. However after the ceasefire, price differences reversed dramatically until peace terms were revealed. Difficult to reconcile otherwise, these patterns match the predictions of a simple model with different political beliefs in Paris and elsewhere about the benefits of war versus peace.

Suggested Citation

  • Jha, Saumitra & Koudijs, Peter & Salgado, Marcos, 2024. "Markets under Siege: How Political Beliefs Move Financial Markets," CEPR Discussion Papers 19220, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19220
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    More about this item

    Keywords

    War; Peace; Conflict; Sovereign debt; Political beliefs and behavior; Financial markets; Asset pricing;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General

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